CalPERS: Clean house

Scandal and deceptiveness can’t be tolerated

Something has gone horribly wrong with the California Public Employees’ Retirement System. The 1.6 million local and state government workers and retirees who rely on the pension giant should be deeply worried. State taxpayers who are going to have to bail out CalPERS should be infuriated. In area after area, CalPERS has been a disaster.

•Public policy. The 1999 state law that led to an orgy of retroactive pension spiking by government agencies only passed because of Cal-PERS’ insane assurance that a perpetually rising stock market would always cover the cost of sharply increasing benefits. CalPERS is thus directly culpable for the financial ruin of dozens of cities, counties and special districts that are saddled with massive unfunded liabilities.

But the agency’s lavishly paid upper management won’t even acknowledge its enormous mistake. Instead of doing the responsible thing – urging the passage of new laws limiting benefits for new hires and reducing benefit costs to more affordable levels – CalPERS sees nothing wrong with its status quo assumption that the state’s general fund should have to provide ever-greater funding to the agency to pay for its actuarial fantasies.

•Competence. CalPERS’ claim that its investments are based solely on their worthiness was demolished by published reports documenting how private equity firms paid Alfred Villalobos, a former CalPERS trustee, more than $70 million for his success in persuading CalPERS to invest in them. Among the firms paying Villalobos: Apollo Global Management. CalPERS’ $600 million investment in Apollo was valued at $180 million earlier this month.

•Integrity. The arrogance that typified CalPERS’ upper ranks when the agency’s investments were doing well has morphed into denial and a take-no-prisoners bunker mentality reflected in top officials’ habit of lashing out at those who point out CalPERS’ woes.

A CalPERS computer was used this summer to post anonymous online comments mocking Marcia Fritz, the leader of a group advocating pension reform. A February story by a Bloomberg reporter on CalPERS’ vast investment losses and dubious long-term predictions on investment returns was ripped by the agency’s assistant executive officer, Patricia Macht, as propaganda from “anti-pension ideologues.”

Meanwhile, the agency has launched a Web site –
www.calpersresponds.com
– that presents a self-serving, distorted view of its record. This led to an unusual rebuke from the editors of Pensions & Investments magazine: “If this were the financial disclosure Web site of a corporation, it certainly wouldn’t pass any minimum acceptable disclosure standard at the Securities and Exchange Commission. This is ironic in that CalPERS would certainly take issue with any corporation in its portfolio that maintained a similar one-sided Web site focusing on its financial or corporate governance performance.”

Plainly, CalPERS has gone haywire – and something needs to be done about it. We think it’s time for the CalPERS board to purge everyone responsible for the poor decisions of recent years. The purge should start with CEO Anne Stausboll, who previously was the agency’s chief investment officer, and extend to those responsible for its hostility to reform and its belligerent approach to critics.

Who should be put in charge? Perhaps chief actuary Ron Seeling. He frankly admits that present benefit levels are “unsustainable.” That his candor about an obvious truth seems so remarkable is one more illustration of the debacle that is CalPERS.